[Editorial] Risky demands

The Renault Group recently issued a warning to the labor union at its South Korean affiliate Renault Samsung Motors.

Jose-Vicente de los Mozos Obispo, deputy alliance executive vice president in charge of manufacturing and supply chains at Renault, sent a video message to the Korean unit saying that if the current strike continues, the parent company may not consign its follow-up model Rogue to the Korean unit.

Rogue is a compact sport utility vehicle of the Japanese carmaker Nissan, produced on consignment at the Renault Samsung plant in Busan.

It is rare for a senior official from the Renault headquarters to send a video message to the company’s overseas assembly workers. This indicates that the group takes the strike at the Busan plant very seriously.

The message also raises concerns that the Renault Samsung plant might follow in the footsteps of GM Korea’s Gunsan plant, which was shut down in February last year due to a sharp decline in its utilization rate.

Rogue is a major model of Renault Samsung, accounting for about half of the total production volume at its Busan plant last year.

The plant is said to have beaten Nissan’s Kyushu factory for the Rogue consignment contract in 2014 thanks to its relatively low labor costs.

But if a follow-up model of Rogue is consigned to an overseas production base for the Renault-Nissan-Mitsubishi Alliance after the current contract terminates in September, the utilization rate of the Busan plant will immediately drop to around 50 percent. If that happens, it is likely that about half of the plant’s 4,000 workers will be laid off.

The average annual salary of a worker at the Busan plant was about 80 million won ($71,100) in 2017. Five years ago, labor costs at the unit were lower than Nissan’s Kyushu plant, but now they are reportedly about 20 percent higher.

From a common sense standpoint, the Renault Group has plenty of reasons to increase its output in Japan.

Yet the Renault Samsung union is demanding a sharp hike in basic wages as well as bonus pay. To that end, it has staged partial strikes on 28 occasions over the past four months and is threatening to step them up.

The Renault Samsung management argues that if it accedes to the union’s demands, it will be hard pressed to win a contract to produce a follow-up model of Rogue. Sales declined nearly 18 percent last year and it is proposing a freeze of basic wages.

The global car market is going through an upheaval. Foreign carmakers are restructuring in a proactive effort to survive amid a slowdown and rapid technological changes.

General Motors is in the process of cutting as many as 14,000 workers in North America and closing up to five plants in an effort to focus on self-driving and electric vehicles.

Volkswagen plans to cut about 7,000 jobs in Germany, as its push to emphasize EVs has made some manufacturing posts redundant.

Ford has also announced plans to eliminate thousands of jobs and discontinue loss-making vehicle lines as part of its efforts to turn around its European operations.

However, Korean carmakers have not embarked on proactive restructuring despite low productivity. Their unions’ opposition makes it hard even to adjust production volumes and vehicle lines. Workers at Korean carmakers receive higher salaries than those of foreign competitors, but they are 60 percent to 80 percent less productive.

As part of a job-creation project, Hyundai Motor and Gwangju City have agreed to build an automobile assembly plant that will pay its workers about half of what their counterparts at other local rivals earn. But the Hyundai labor union is threatening strikes in an effort to abort this effort.

After the closure of GM Korea’s Gunsan plant, the Renault Samsung union is in a weak position to ask for more pay. They will end up shooting themselves in the foot if their excessive demands endanger the survival of their company.